It is alleged that Amazon is in talks to buy a 26% stake in Reliance Retail, India's largest brick-and-mortar retailer.
Reliance Retail launches an e-commerce service, and it could seriously threaten Amazon's growing presence in what is on track to become the second largest e-commerce market in the world. Neither Amazon nor Reliance commented on this story.
India is a massive business opportunity – especially in e-commerce. The e-retail market in India is only worth $ 38.5 billion now, but it is poised to become an even bigger online shopping market than the US by 2034.
And, perhaps more importantly, Indians have not decided on their e ̵[ads1]1; Dealer Choice. There is still a fragmented marketplace with Amazon, Walmart-owned Flipkart and local giants like Reliance and Paytm Mall all claiming some of the pie.
With 10,000 plus physical locations, five million customers a week, and the blessing of the Narendra Modi administration, Reliance Retail has a serious potential to become India's Alibaba – a domestic retail giant that prevents Amazon from gaining serious market share.
And Amazon, which has already lost to China and spent billions in India, cannot afford to fall behind in this region of the world.
Modi fights against the threat of & # 39; data colonialism & # 39;
The Modi government makes it challenging for companies outside India to take advantage of the explosive growth in consumer spending, with a series of new laws limiting foreign direct investment in e-commerce.
Several other rules, such as preventing companies from offering special prices on certain websites, are meant to keep bricks and mortar healthy as e-commerce barriers.
These laws are aimed at to fight what Indians call "data colonialism" – the fear that US tech giants will reap profits from Indian consumers and their data. "As a country, we all have to grow up and say you know enough of this," said Vinit Goenka, a Modi government official last year.
US retailers have tightened the rules, especially Walmart, which owns a $ 16 billion stake in retailer Flipkart. "This is a major change and a regressive political shift," a senior executive in government affairs at Walmart told the US Commerce Representative's office in an email Jan. 7, Reuters reports.
These roadblocks are bad news for Amazon
The growth of Amazon Web Services – the company's cash cow – has slowed, so investors hope Amazon can dominate in new international markets such as India to increase revenue.
"Amazon has several drivers that should provide strong global revenue growth with rising margins over the next few years, namely … significant opportunity in existing and recent international markets such as India, Mexico and Australia," Cowen analysts wrote to investors in July.
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Amazon has rolled out in new markets worldwide for year, but the payout has not settled yet. Amazon loses money in the international sector – worth $ 690 million in 2019 and $ 1.1 billion for the first six months of 2018.
Growth in overseas sales is also declining in 2019. In the first half of 2019, Amazon saw 10% net sales growth outside of North America, compared to a 31% net sales increase over the same period last year.
These pressures to actually make a profit abroad are only further challenged when the foreign government does not look kindly at outside companies trying to sway market shares.
Amazon recently reported that its Prime subscription base in India has doubled in the last 18 months. But the Modi government's interest in protecting domestic, traditional retail channels is likely to interfere with Amazon's further efforts to expand meaningfully in India. Analysts like Jason Helfstein of Oppenheimer have warned that these regulations will put a damper on revenue for 2019 and 2020.
The legal roadblocks are in fact so intense that Amazon grouped India with famously restrictive China in its latest quarterly statement under the outline "Risk Factors" in "Our international operations expose us to a number of risks."
But local players will flourish – and Amazon is likely to coin them
Modi rules create winners and losers. Analysts say Reliance Retail, India's largest retailer that is now opening an e-commerce service, is a clear winner of the new laws.
Two top executives told The Economic Times Thursday that Amazon is in talks to buy a 26% stake in Reliance. This will allow Reliance to become a Marketplace seller on Amazon and will provide Amazon with an instant logistics and fulfillment network across India. However, the conversations may not lead to an appointment.
Read more: It is alleged that Amazon is in talks to gain a 26% stake in a huge Indian retailer, which means it will dominate a $ 200 billion market
Reliance is India's largest industrial conglomerate, and it has its fingers in oil, textiles, telecommunications, consumer electronics and just about everything else. With $ 87 billion in revenue, it is one of India's best-known companies – giving it a brand name across India that is recognized more than Amazon.
Together with a home-court advantage, Reliance is established on the brick-and-mortar side of India. There are already 10,000 Reliance Retail outlets across the country. About 97% of the retail in India is done in the shop.
"In retail / e-commerce, despite competition from well-funded global companies, RIL's broad footprint of physical stores along with its omnichannel focus, subscriber reach and regulations governing foreign e-commerce devices could help it get a 300 basis point market share in high growth, modern retail, "wrote UBS analysts in a note from January.
But for Amazon it would be very costly to lose India. Amazon has already invested at least $ 5 billion in India. The company struggled to establish a meaningful presence in China, so losing India means the retailer would not sell to about 37% of the world's population.
And when it comes to Reliance, UBS analysts asked in their January report: "Can RIL evolve into India's Amazon / Alibaba / Walmart?" It then followed up: "Yes."